United pegs January loss at $382 million

Susan ChandlerTribune staff reporter

United Airlines lost $382 million in January, but its remaining pile of cash barely declined thanks to drastically reduced employee wages.

The Elk Grove Township-based carrier ended January with $1.78 billion in cash, down less than 2 percent from $1.81 billion on Jan. 1. That's good news for the nation's second-largest airline, which filed for federal bankruptcy protection from creditors in December.

After the filing, United's pilots, flight attendants and salaried employees agreed to temporary wage cuts to help the carrier through the immediate crisis. A bankruptcy court judge later imposed similar cuts on United's mechanics.

Separately, some good news for United from the Internal Revenue Service may be bad news for the company's employee-owners.

In a private letter to United, the IRS said the sale of an additional 3.9 million shares of employee-owned stock would not jeopardize United's ability to use massive tax-loss carry-forwards when it emerges from bankruptcy.

The sale of stock in United's employee stock ownership plan by the plan's trustee, State Street Bank & Trust, had been halted after the bankruptcy court judge issued an injunction at United's request.

If all the 3.9 million shares are sold, the percentage of employee ownership at United could fall below 20 percent, the airline said Tuesday. That would trigger the so-called sunset of the ESOP, which was not anticipated to occur for many years as employee owners retired and cashed in their shares.

When that occurs, the pilots and machinists unions at United would continue to hold one board seat apiece. But their "superveto" power would go away.

Under the original ESOP, the board members representing those two unions could veto certain important actions such as acquisitions, divestitures and the appointment of a chief executive. But to be able to use the superveto, the pilots' and machinists' representatives had to vote together.

In the past, the superveto was the union's trump card over major management decisions. For instance, it could have been used to prevent United's management from selling off pieces of the airline or buying another carrier.

"If sunset happens, certain rights are going to be lost," said Elliott Sloane, a spokesman for the Air Line Pilots Association at United. "We are still opposed to the sale of the shares that were negotiated as part of the collective bargaining agreement, and we are disappointed the company endorsed and supported this ruling by the IRS."

Still, United's common shares are likely to be wiped out as part of the company's reorganization, prompting the sunset of the ESOP anyway. Even if some form of employee ownership is reconstituted at a new United, the superveto power almost certainly will go away, union leaders admit, so its loss doesn't really mean all that much.